CLASSICAL GROWTH THEORY:

KARL MARX: IDEA & APPROACH

Development Economics
R P Pradhan
BITS Goa

BITS Pilani, K K Birla Goa Campus

Proposed Objective?

To understand Karl Marxs perspectives on the problem of economic

growth.
1) Marxs method of historical analysis
2) Marxs analysis of capitalism
3) Interpretation of Value as created in Economy
4) Interface of K & L for value creation
5) How Marx compares with Smith, Ricardo and other classical
economists

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 Youngest Daughter
Eleanor Marx Aveling
also known as Jenny
Julia Eleanor "Tussy"
Marx

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 Back Ground

Book is acclaimed as the precursor to Marxs Wage, Labour

important treatise Das Kapital. and Capital -

This book deals with scientific rationale on his

ideas of "alienated labor," which in Marxs
Essay on economics
perspective would eventually lead to the by Karl Marx,
proletarian revolution.
Written in 1847 &
Wage-Labor and Capital is considered by Marxists
as an "in-depth economic and scientific 1st published in
observation on how capitalist economy works, articles in the Neue
Rheinische Zeitung
Why it was exploitative, and ultimately why it
would eventually implode from within".
in April 1849.
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 Some of the main topics the book examines
are about labour power and labour, and how 1. The book deals with
labour power becomes a commodity. Labour as a factor of
Production
It also presents the Labour Theory of Value
that further develops the distinct differences
between labour and labour power. 2. Commodification of
Labour
The book also examines the commodity and
how the economic principles of supply and 3. Labour Theory of Value
demand affect the pricing of certain
commodities.
4. Labour Power
Also, the book explores how capital and
capitalism do not service any purpose other 5. Non Productivity of
than to gain more of it, which Marx presents Capital & Capitalism
as an illogical method of living ones life.
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 Marxs Method -

Marx uses a theoretical framework called

The Dialectic or Dialectic Materialism

which he borrows from Hegel in order to explain
historical social transformation. Thesis -

[The dialectic]- Hegel argues that ideas Anti Thesis -

progressed through an argumentative process
where a thesis is first proposed, this is
followed by an anti-thesis which opposes the Synthesis-
thesis and the tension between the two gets
resolved through the formulation of a
synthesis (which then becomes a new thesis). - Thesis
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 Marx applies the dialectic principle to history in order to analyse and
explain social transformation process. According to Marx, societies
pass through certain phases
Primitive Communism,
Slavery,
Feudalism,
Capitalism,
Socialism and Communism (These two he predicted)

Each of which can be understood to be a thesis which after a point,

face certain inner contradictions (anti-thesis) and thereafter a new
stage emerges (synthesis) which then becomes a new thesis and the
same cycle repeats.

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 How does this Work?

1. In order for a society to survive and reproduce itself it has

to produce and reproduce the material requirements of
life.
Division of
2. To do this, human beings enter into relations of production. Labour
leads to
3. They collectively work on nature but, all do not do the same work; Capital
Ownership
4. Division of labour & some become owners of the means of
production.

1. Relations of production are in turn determined by the productive

forces i.e the means of production comprising of tools, technology,
raw materials, knowledge and abilities used in the production
process.
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 Productive Forces according to Marx Economic Base of
constitutes the economic base of society. Society

From this foundation arise political Institutions

institutions, ideology, culture, values, laws
etc. which make up a societys
superstructure. Values, Ideology
etc.
The causal factor behind a societys
transformation is therefore - changes Social Super
occurring in its modes of production Structure
(Historical Materialism).
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 In this way Marx identified that historically
societies passed through primitive
communism, ancient society (slavery),
feudalism to capitalism. Change of
Tools &
Overtime, certain inner contradictions occur Technology
within each mode of production.
changes mode
This happens as the material productive forces of Production
come into conflict with the existing relations of
production because-

The relations of production are no longer able

to support new productive forces (anti-thesis).
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A new stage in social transformation is
reached when the dominant class is
replaced by a new emerging class.
Whereby, the underclass liberates the
productive forces with new relations of
production (synthesis).
Other changes in the superstructure of
society follow.
Shift in Mode of Production
due to inner contradiction
New stage in social
transformation
New Emerging Class
Underclass liberates the
productive forces i.e.
Synthesis
New superstructure of
society
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Modes of production through history

This way, primitive communism where there

Primitive
was predominantly collective production ----
Communism

But, with domestication of plants and animals Slavery

(surplus could be produced, & Inequalities
arose) ------ gave rise to contradictions and Feudalism
made way for slavery.
Capitalism
Slavery broke down as it became increasingly
difficult to carry out production by conquering
slaves

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 An aristocracy emerges which replaces it
with feudalism characterized by many Feudalism &
classes such as kings, lords and serfs.
Aristocracy

Trade with other nations gives rise to a

class of merchants from whom the capitalist
classes emerge who turn antagonistic with Trade
the aristocracy and through a bourgeois &
revolution this leads to the next stage i.e. Capitalism
capitalism.

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 Karl Marx & Capitalism Analysis

The bulk of Marxs analysis is to understand the mechanisms of

capitalism (Das Kapital Vols. I, II & III)

Capital Formation & Accumulation & -------

Capitalist society is characterized: by private ownership of the

means of production (no longer in the hands of the monarch or
aristocracy) by the capitalist who aim to maximize profits.

The economy is characterized by free-market but (many Marxists

hold the view that) the state intervenes to further the interests of
the capitalists.

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 Marxian Economic Growth & Value Creation Approach

In order to understand Marxs The value of output / commodity

views on economic growth, it is comprises of three elements:
first important to understand
his theory of 1. Variable capital or wages paid to
labour = (v),
How value is created? i.e. S > V or (S is W dependent.)

V= Wages to L 2. Constant capital investments in plants,

machinery & raw material = (c)
C= Constant Capital
S= Surplus Value 3. Surplus value = difference between
minimum wage & output per worker = (s).

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 Now wages are determined by the
minimum subsistence wage (cost of
reproducing labour)
Control of
Surplus Value is created by labour but, Means of
is expropriated by the capitalist Production leads
because wages are less than the value to Subsistence
of the final product. Wage

This is possible because workers do not

own the means of production. All they own
and can sell is labour power.

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 The Rate of Surplus Value therefore is
(degree of exploitation) - denoted by S / v
According to Marx
This determines the rate of profit given by
s/(v + c) The surplus (s)
is the mainspring of
capital accumulation
fS = C- W
and driver of
economic growth.
Therefore P(Profit) = (S/ V+C)
Also denoted as (s/v)/(1 + [c/v]).
(c/v is referred to as the organic composition of capital).
While C has to be spent, W is Negotiable
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Marx & The Crisis in Capitalism

According to Marx economic growth does not carry on forever not

because it reaches a stationary state DRS from land (Ricardo) but because
of a crisis in capitalism.

How
1. According to Marx, technological innovations were applied in the
course of production and these were often labour displacing, creating
what he referred to as an industrial reserve army but it also caused
immiserisation.

Which was compatible with capitalism since it facilitated the rapid

movement of capital to new productive activities and checked the
bargaining power of labour so wages could be kept at subsistence.
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2. As techniques of production become more capital intensive, the
organic composition (c/v) rises through time & as it does, the rate of
profit begins to fall unless surplus value rises.

But here there is another problem; while there is no limit to c/v

however there is a limit to s/v i.e. Wages.

Marx saw no major problem as long as surplus labour exists to keep

wages down but he predicted that as capital accumulation
accelerates, the reserve army of labour would disappear and full
employment would drive wages up and profits down.

Now the capitalists would respond by either trying to keep wages

down leading to immiserisation of workers
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3. Another problem that arises is, as capital is
substituted for labour, there is a problem that
labour cannot consume the goods produced

i.e. a problem of lack of effective demand realization

crisis Commodity Demand Crisis Labour Power
4. Class consciousness occurs as workers realize that Class
they are exploited and that they dont own the
means of production. Consciousness

As fewer and fewer people benefit from capitalism, leading to Class

this leads to a conflict between the workers and Struggle
the capitalists, leading to class struggle and social
revolution. & Revolution
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REFERENCES

Misra, S. K. and Puri, V. K. (2010), Marxs Theory of Economic

Development, in Development and Planning: Theory and Practices, 13th
ed. Himalaya Publishing House Pvt. Ltd. Mumbai, pp. 110 - 118.

Thirlwall, A. P. (2006) Classical Growth Theory in Growth and

Development with Special Reference to Developing Economies. 8th ed.
Hampshire: Palgrave Macmillan, pp. 129 130.

Backhouse, R. E. (2002) Karl Marx in The Penguin History of

Economics, London, Penguin Books, pp. 156 164.

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